1
The Work of Management
Planning
Controlling
2
The Work of Management
Initiate LT &
Planning
ST Plans
Measure
Controlling
Performance
3
The Work of Management
Initiate LT &
Planning
Planning
ST Plans
Planning -- involves
Evaluate
developing objectives
Decision Organizing
Implement&
Evaluating
Performance Directing
Plans
Making
and preparing various
budgets to achieve these
objectives.
Measure
Controlling
Performance
4
The Work of Management
Control
Initiate LT & involves the
Planning
steps
ST Planstaken by
management that
attempt to ensure the
Evaluate Organizing
Implement&
Evaluating
Performance objectives
Decision
Making
are Directing
attained.
Plans
Measure
Controlling
Control Performance
5
The Work of Management
Initiate LT &
ST Plans
Measure
Performance
6
The Work of Management
Through
Planning
the budget
Measure
Performance
7
The Work of Management
Planning
According
Evaluate Decision Implement
to the Budget
Performance Making Plans
Measure
Performance
8
The Work of Management
Initiate LT &
Planning
ST Plans
Measure
Controlling
Performance
9
The Basic Framework
of Budgeting
10
A Budget is . . .
11
Now
1 Year
5 Years
12
Short-Run Vs. Long-Run
Budgets
Strategic Planning
Selecting overall objectives.
Choosing what markets to be in.
Selecting what products to produce.
Determining the price/quality mix.
Deciding which technologies to use.
13
Short-Run Vs. Long-Run
Budgets
Strategic Planning
14
Short-Run Vs. Long-Run
Budgets
Strategic Planning
Long-run Budgets
15
Budgets . . .
Imposed
Vs.
Participatory
16
Imposed Budgets Versus
Participatory Budgets
Imposed Participatory
Budgets Budgets
Continuum
Participatory Budgets
Continuum
18
Imposed Budgets Versus
Participatory Budgets
Imposed
Budgets
19
Best Time to Use . . .
In start-up organizations
In extremely small businesses
In times of economic crises
When operating managers
lack budgetary skills or perspective.
20
Advantages . . .
21
Disadvantages . . .
Participatory
Budgets
23
Best Time to Use . . .
In well-established organizations.
In extremely large businesses.
In times of economic affluence.
When operating managers have
strong budgetary skills
and perspectives.
24
Advantages . . .
25
Advantages . . .
26
Advantages . . .
27
Disadvantages . . .
28
Advantages of Budgeting
Define goal
and objectives
Communicating Think about and
plans plan for the future
Advantages
Coordinate Means of allocating
activities resources
Uncover potential
bottlenecks
29
The
Master Budget
30
31
The Master Budget
Overhead
DM Budget DL Budget
Budget
33
Tom Willis is the majority stockholder
and chief executive officer of Hampton
Freeze, Inc., a company he started in
2001. The company makes premium
popsicles using only natural
ingredients and featuring exotic flavors
such as tangy tangerine and minty
mango. The companys business is
highly seasonal, with most of the sales
occurring in spring and summer.
34
In 2002, the companys second year
of operations, a major cash crunch
in the first and second quarters
almost forced the company into
bankruptcy. In spite of this cash
crunch, 2002 turned out to be
overall a very successful year in
terms of both cash flow and net
income.
35
With the full backing of Tom Wills,
Larry Giano set out to create a
master budget for the company for
the year 2003.
In his planning for the budgeting
process, Larry drew up the
following list of documents that
would be a part of the master
budget.
36
1
6 2 7
3 4 5
9 10
37
The Sales
Budget
39
40
The Production
Budget
42
Hampton Freeze would like the ending
inventory of finished goods to be equal
to 20% of next quarters sales.
43
2. Equals expected 3. Plus Desired EI of
sales in units finished units.
46
The Direct Materials
Purchases Budget
48
Hampton Freeze has
established a policy of
maintaining RM equal to 10% of the
amount required for production in
the subsequent quarter.
50
2. Equals amount 3. Plus Desired EI of
required for raw materials.
production.
4. Less BI of raw
materials.
1. Required purchases of
Direct Materials
51
52
The Direct
Labor Budget
53
Each case produced requires 0.4 direct
labor hour.
Each hour costs $15
54
The Direct Labor Budget
55
The MOH
Budget
57
The Ending Finished
Goods Inventory
Budget
59
The Selling and
Administrative
Expense Budget
A budget showing
expenses for areas other
than manufacturing.
60
The S&A Expense Budget
61
The Cash
Budget
62
63
The Budgeted
(Pro-Forma)
Income
Statement
64
65
The Budgeted
Balance Sheet
66
class discussion:
explain about
behavioral aspects
of accounting
68